October data points to a sustained recovery in UK construction output

October data points to a sustained recovery in UK construction output

December 2020

UK construction companies reported a sustained recovery in output volumes during October, but the rate of expansion was the slowest for five months.  This was signalled by a fall in the IHS Markit/CIPS UK Construction Total Activity Index to 53.1, from 56.8 in September.

House building was by far the best-performing area of construction activity in October (62.4) and the speed of recovery eased only slightly since September.  Survey respondents often commented on pent up demand and a boost from improving housing market conditions in recent months.

Higher levels of overall construction work also reflected another rise in commercial activity (52.1), although the latest expansion was the weakest for five months.  Meanwhile, civil engineering activity (36.4) dropped for the third month running, with the rate of decline accelerating.

October data indicated a robust increase in new work: the strongest since December 2015.  Higher levels of new business were mostly attributed to the start of projects that had been delayed by the COVID-19 pandemic and a continued upturn in demand for residential building work.

The rebound in construction activity after the shutdowns seen during the initial lockdown period continued to put pressure on supply chain capacity in October.  This was signalled by another sharp lengthening of delivery times for construction products and materials, with the latest deterioration in supplier performance the steepest since June.

Construction firms often noted that demand for building materials had outstripped supply in October, which resulted in higher average cost burdens.  Meanwhile, efforts to reduce overheads and ongoing economic uncertainty contributed to a further decline in staffing numbers across the construction sector. The rate of job shedding was nonetheless much slower than seen in the second quarter of 2020.

Looking ahead, construction companies reported optimism towards their prospects for the next 12 months, despite concerns about the wider economic outlook.

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